Healthcare Issues & Trends

Advice & Insights for healthcare's Leaders & HR Professionals


Staff Compensation: Building a Foundation

Posted on July 20, 2015 by Susan O'Hare

Susan O'Hare

Staff compensation constitutes about 50 to 60 percent of the total operating costs of a hospital. As the single largest component of the expense budget, it gets surprisingly little attention in boardrooms and senior staff meetings. While most boards pay a great deal of attention to executive compensation, and many also devote time to physician compensation (all should!), most boards do not pay attention to staff compensation, even though it represents a higher cost to the organization.

Surveys of HR staff have shown that nearly all organizations try to position pay for non-exempt employees at the market median or average. This is typically not an intentional compensation philosophy, but a habit that has been followed over the years without a lot of discussion. Budgets for pay increases are typically set in a top-down fashion by finance as part of the budgeting process, and not by HR as a reflection of market forces or as a thoughtful adjunct to support culture. As long as the organization is able to fill vacant positions, everyone assumes things are working well. But this kind of laisez faire approach is, at best, not strategic, and at worst, it may be harmful to the organization and its culture in any number of ways.

This article discusses just three foundational steps in designing and administering staff compensation that will lead to a better use of scarce resources and greater employee satisfaction with pay.

Compensation Philosophy

The foundation of staff compensation is the compensation philosophy. At a minimum, the philosophy should define who is responsible for making pay decisions, whom the organization compares itself against for recruitment and retention purposes, and how the organization intends to position pay versus the market.

With most hospitals targeting pay at market median or average, the way “market” and how the appropriate peer group for comparison is defined becomes critically important. The market for staff-level talent is not just other hospitals in the same community. The market for housekeeping includes the hospitality industry. The market for IT jobs includes general industry. The market for maintenance workers and the trades includes construction and other businesses employing skilled tradesmen, whether licensed or not licensed. Depending on the position, the market for talent may also include universities and government services. But unless there is a shortage of applicants for a particular “hot” job, most organizations don’t give much thought to the market for talent.

Many organizations fail to adapt their definitions of market as the competition for talent for particular jobs changes. For example, some jobs have become “virtual,” such as coders and epic/IT related positions, where continuing to rely on a localized peer group handicaps an organization’s ability to hire and retain experienced individuals.

Periodic Compensation Audits

Every hospital’s financial statements are audited annually, but the largest cost – staff compensation – is rarely, if ever, the subject of a third-party audit. Periodic audits of compensation will confirm whether the organization is paying competitively and identify areas where it can improve. It’s like a building inspection – it can tell you whether your foundation is stable and in good repair, and show you where a little maintenance is needed and how to pro-actively prevent problems in the future.

Markets are not static, and they do not move in parallel. If nursing pay is increasing by 3% per year, that doesn’t suggest that pay for housekeeping or cafeteria workers should increase at the same rate. A budget-driven approach to wage increases will eventually result in overpaying some jobs and underpaying others. This is not an efficient use of scarce resources. Overpaying is a waste of money, and underpaying can lead to high turnover, which has a cost, too, because the hospital spends more money on training without reaping the benefits of having experienced workers.

An audit of staff compensation should focus on these fundamentals:

  • Benchmarking – how are you comparing your jobs to the market for talent?
  • Peer group – what employers or industries hire people with the same skills to do similar work? Do you have data for these peer groups?
  • Outliers – how many people are paid above or below market, and why?
  • Consistency – is there internal equity between individuals in the same job? Between related jobs? Between job families?
  • Market and merit increases – how have the increases provided by your organization compared to the market over the past several years?

Periodic audits can help fine tune the budget and salary administration processes to reflect true market movement, preserve internal and external equity, and shed light on special pay practices that were begun without the end in mind and may represent dollars being spent for situations that no longer exist. These audits frequently uncover areas where current or future cost savings may be found.

Communication Plan

There is little doubt that the way pay is positioned can have an impact on culture. But the way employers communicate with employees about pay can have a greater positive or negative impact on culture than the pay itself. It is human nature to believe we all deserve higher pay. An organization that does a good job of communicating about compensation philosophy and pay can defuse some of the perceptions of inequity and lack of fairness that will otherwise dominate water cooler conversations.

How many of your executives can articulate the compensation philosophy for employees?How many of your managers can do it? Simply having the conversation can help employees understand that pay is not haphazard; there is a structure that seeks to be fair and consistent. Without the discussion, employees will be left to their own opinions regarding how fairly they’re paid.

Many managers are hesitant to talk about compensation philosophy, either because they don’t understand their own pay, or they’ve received increases that are larger than those their employees receive. However, there is nearly always a positive story to tell about pay, and HR can encourage the discussion by creating talking points for managers, or directly assisting in conversations where managers need help. Besides communicating the compensation philosophy and emphasizing fairness and equity, these are some key points organizations should communicate each year before wage adjustments occur to help employees appreciate the investments being made in their compensation:

  • How many people are getting wage increases
  • How wage increases also increase the value of benefits
  • The total dollar impact of pay increases for workforce as a whole

Summary

This article has outlined three foundational steps in creating a sound staff compensation plan that uses resources wisely and encourages employee understanding of pay. By being intentional about setting a compensation philosophy, conducting periodic audits to assure you’re doing things properly, and communicating with employees, you can improve the likelihood that the impact of pay on your organization’s culture is a positive one.

EXECUTIVE PAY FOR PERFORMANCE: THE FUNDAMENTALS The How, Why, When, Where, and What of Executive Pay

Posted on November 11, 2013 by Gallagher Integrated

While the idea is simple—paying more to get more—the realities of healthcare executive pay are much more complex. From the compensation issues arising from healthcare reform to those that have existed for decades, understanding the linkage between executive pay and organizational performance is as important as ever. So INTEGRATED Healthcare Strategies offers this exploration of The Fundamentals; a literal How, Why, When, Where, and What of executive pay for performance in a free E-book.

Here you will find five summaries of articles authored by INTEGRATED thought-leaders, that provide five different perspectives to help you better understand how pay impacts performance so you can better manage your organization's success. The full articles can be accessed by downloading INTEGRATED’s free E-book!

HOW can pay impact care?

Article: “Improving Quality of Care Through Executive Incentive Plans”, Eric Reehl, senior consultant

Between healthcare reform and accountable care organizations, the industry continues to emphasize quality to determine executive incentive plans. In a recent survey by INTEGRATED Healthcare Strategies on quality measures used at hospitals and healthcare systems, we found that the CMS Hospital Quality Initiative (HQI) measures were the most common. When this survey was conducted, more than half of the respondents used the CMS measures to assess quality. Learn more in INTEGRATED’s free E-book.

WHY do execs get pay increases?

Article: “Why is Executive Pay Still Rising?”, David A Bjork, senior vice president & senior advisor of executive compensation

With nearly 6,000 hospitals and hundreds of health systems competing for executive talent, there are plenty of open positions and a lot of recruiting activity. However, executive pay continues to rise. Find out why in INTEGRATED’s free E-book.

WHEN will new approaches arrive?

Article: "Hospital and Healthcare System Executive Compensation: The Future of Performance and Pay", Kevin Talbot, senior vice president & practice leader of total compensation and rewards

According to INTEGRATED Healthcare Strategies’ 2013 National Healthcare Leadership Compensation Survey, more than 80 percent of all hospitals and healthcare systems have annual incentive plans for their executives. Most of these plans are relatively similar in design, employing a combination of financial and non-financial performance metrics and targeting incentives at around 20 percent to 30 percent of base salary depending on the position. What does this mean for the future of executive compensation? Download INTEGRATED’s free E-book for the answers.

WHERE is non-profit CEO pay headed?

Article: "CEO Compensation Practices in Nonprofit Hospitals: A Matter for Public Concern and Action?”, Ken Ackerman, chairman, and David Bjork, senior vice president & senior advisor of executive compensation

Virtually all non-profit hospitals and health systems are facing major challenges such as labor shortages, intense competition, and increasing financial risk for various dimensions of performance—quality, patient safety, patient satisfaction and efficiency. Find out how this impacts where non-profit CEO pay is headed in INTEGRATED’s free E-book.

WHAT incentives drive value-based care?

Article: “Using Executive Pay to Bridge the Gap to Value-Based Care”, Becker’s Hospital Reviewinterview with Kevin Talbot, senior vice president & practice leader of total compensation and rewards

Typically, for an annual incentive plan, CEOs receive an incentive that is 30 percent of their base salary. To achieve that fully, they need to meet certain criteria. In terms of how much of that 30 percent is based on financial versus clinical, 40 percent or less should be based on financial. A majority should be based on clinical quality, patient safety and patient satisfaction. Are you curious how this is happening? Answers can be found in INTEGRATED’s free E-book.

These five articles authored by INTEGRATED thought-leaders will be offered as a free downloadable E-book October 1 — December 31, 2013. Don’t forget to visit our website and download your copy!

Our Top 8 Most Popular Industry Intel

Posted on May 15, 2013 by Gallagher Integrated

In honor of National Healthcare Week, we at INTEGRATED wanted to give back to the dedicated professionals that make our healthcare facilities the places of trusted care that they are.  We thank the men and women in our hospitals nation-wide that play an essential role as providers of care.

Our experts are constantly developing new and insightful content for our clients and the healthcare industry. And here, we've pulled together the top eight most-popular items from the past year, ranging from articles to webinars to videos.

We hope these resources provide your organization with intel that help it operate more effectively, and prepare better for the future. 

To get upcoming newsletters, join our mail list!

What healthcare organizations were saying about staff compensation in 2012

Posted on May 2, 2013 by Gallagher Integrated

Healthcare leaders and human resource executives struggle to design pay programs that make the best use of limited resources while maintaining or even improving employee understanding and engagement.  It is critical for healthcare organizations to rely on comprehensive benchmark data to ensure they develop effective compensation programs.
 
INTEGRATED Healthcare Strategies published its 2012 National Healthcare Staff Compensation Survey in June 2012.  This survey, along with our National Healthcare Leadership Survey, is co-sponsored by the American Society for Healthcare Human Resources Administration (ASHHRA).  The 2012 National Healthcare Staff Compensation Survey compiled data from a record-high 881 participating hospitals and healthcare systems, representing over 850,000 incumbents.  Following are highlights from the survey:

  • 92% of respondents intended to provide at least some staff-level positions with market compensation increases within the next 12 months
  • Merit compensation increases were planned for over the next 12 months by 93% of respondents
  • Nation-wide, organizations provided a 2.2% average merit increase to staff-level positions within the last twelve months
  • Nationally, an average 2.9% vacancy rate was reported for full-time staff-level employees

The statistics shown here are a small sample of data extracted from the 2012 National Healthcare Staff Compensation Survey.  The full survey report was available to both participant and non-participant organizations and provided results on an extensive list of 278 staff-level benchmark positions, ranging from clinical professional technical jobs to support and non-clinical positions.  It surveyed numerous specialties, home care, and PRN benchmarks.  Position and special pay practice data is presented nationally and regionally.  The results cover comprehensive data on special pay practices including call pay practices, shift differentials, certification pay, career ladders, incentives, visit rates, and more.
 
The 2013 National Healthcare Staff Compensation Survey will publish on June 28, 2013. 
 
Other surveys currently open for participation or purchase include:

National Healthcare Leadership Compensation Survey:  Participation closes on May 10, 2013 with publication on August 30, 2013
 
National Nursing Compensation Survey:  Publication on May 10, 2013
 
Medical Director Survey:  Participation now open with publication on August 30, 2013
 
Advanced Practice Clinician Survey:  Participation Opens on July 2, 2012 and closes on September 27, 2012; publication on December 27, 2012
 
INTEGRATED also conducts custom surveys tailor-made for healthcare organizations.  See more details on all our compensation surveys online or contact our Compensation Survey Department at Comp.Surveys@IHStrategies.com  or call 1-800-821-8481.

Using high-quality resources to make critical healthcare compensation decisions

Posted on April 5, 2013 by Gallagher Integrated

INTEGRATED Healthcare Strategies offers a wide variety of national compensation surveys.  We've recently extended a few of our survey deadlines to give healthcare organization leaders and HR professionals a second chance to get the high-quality resources they need to make critical compensation decisions.  Even better than just purchasing the survey reports, participating organizations receive a discount on their survey purchases.  Bundle the National Healthcare Leadership & Staff Surveys to save even more!

Check out the following dates to see what's going on now, and what's coming soon.

NATIONAL NURSING COMPENSATION SURVEY
EXTENDED DEADLINE!
Includes more than 100 positions, special pay practices, and data reported nationally and by region.
Participation deadline:  April 17, 2013
Publication:  May 10, 2013

NATIONAL HEALTHCARE STAFF COMPENSATION SURVEY
EXTENDED DEADLINE!
Published for over 20 years and includes more than 250 benchmark positions.
Participation deadline:  April 19, 2013
Publication:  June 28, 2013

* Co-sponsored by ASHHRA

NATIONAL HEALTHCARE LEADERSHIP COMPENSATION SURVEY
OPEN
Data on more than 200 positions at executive, director and manager levels.
Participation deadline:  May 10, 2013
Publication:  August 30, 2013

* Co-sponsored by ASHHRA

MEDICAL DIRECTOR COMPENSATION SURVEY
JUST OPENED!
Covers more than 90 position titles and includes data from more than 150 organizations.
Participation deadline:  June 7, 2013
Publication:  August 30, 2013

ADVANCED PRACTICE CLINICIAN COMPENSATION SURVEY
More than 70 benchmarks for nurse practitioners, physician assistants, and nurse midwives.
Participation opens:  July 11, 2013
Participation deadline:  September 27, 2013
Publication:  December 27, 2013

CUSTOM SURVEY CAPABILITIES
Infinite possibilities from custom cuts of data and Custom Surveys offered by INTEGRATED.

For more information on any of our surveys or to purchase or participate, please email/contact comp.surveys@IHStrategies.com.

 

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